Chapter 7-Strategy and Technology: True/False

Chapter 7—Strategy and Technology
TRUE/FALSE
1. Interestingly, technical standards create benefits primarily for those firms that do not adhere to
them.
ANS: F PTS: 1 DIF: Easy

OBJ: 1 - Understand the tendency toward standardization in many high-technology markets
NAT: AACSB Technology | Information Technologies KEY: Knowledge
2. It can be argued that Microsoft's near monopoly of PC operating systems helped raise the level of
industry profitability.
ANS: T PTS: 1 DIF: Moderate

3. Battles to set and control technical standards in a market are referred to as product positioning.
ANS: F PTS: 1 DIF: Moderate

NAT: AACSB Analytic | Creation of Value KEY: Knowledge
4. The layout of the keys on a computer keyboard is an example of a technical standard.
ANS: T PTS: 1 DIF: Easy

NAT: AACSB Reflective Thinking | Information Technologies KEY: Knowledge
5. A set of related technical standards that specify the common set of features or design
characteristics of a product is called a dominant design.

6. Fortunately, technical standards always exist in the public domain so that any company can use
them.

NAT: AACSB Technology | Information Technologies KEY: Comprehension
7. Ownership of an industry standard that is protected from imitation by patents and copyrights is a
weak organizational resource.

NAT: AACSB Analytic | Strategy KEY: Comprehension
8. By exploiting a positive feedback loop, Dolby Laboratories, became the standard for sound
quality.

OBJ: 2 - Describe the strategies that firms can use to establish their technology as the standard
in a market NAT: AACSB Technology | Information Technologies
KEY: Knowledge
9. Digital music downloads have high marginal costs.

KEY: Knowledge
10. When two or more companies are competing with each other to get their technology adopted as a
standard in an industry, and when network effects and positive feedback loops are important, the
company that wins the format war will be the one whose strategy best exploits positive feedback
loops.

KEY: Knowledge
11. Companies that are locked out of a market are those in which consumers are unwilling to bear the
switching costs required for them to abandon the established standard and adopt the new one.

KEY: Knowledge
12. Switching costs are the costs that consumers must bear to switch from a product based on one
technological standard to a product based on another.

KEY: Knowledge
13. A possible strategy for winning a format war is for a company to make sure that, in addition to the
product itself, there is an adequate supply of complements.

in a market NAT: AACSB Analytic | Strategy KEY: Knowledge
14. Microsoft Word, the word-processing software, is so easy to use and has so many useful features
that no other software can compete with it. Therefore, Microsoft Word can be described as a killer
application.

in a market NAT: AACSB Reflective Thinking | Information Technologies
KEY: Application
15. A razor-and-blade strategy refers to lowering a company's cost structure.

16. Aggressive marketing is a key factor in jump-starting demand to get potential early adopters to
bear the switching costs associated with adopting a new innovation.

17. Digitalization has made it more difficult to protect some intellectual property rights.

OBJ: 3 - Explain the cost structure of many high-technology firms, and articulate the strategic
implications of this structure NAT: AACSB Technology | Legal Responsibilities
KEY: Knowledge
18. One important advantage of being a first mover is that it guarantees success.

implications of this structure NAT: AACSB Analytic | Strategy
KEY: Knowledge
19. When a company is trying to win a format war it should license its format for a low fee rather
than a high fee.
ANS: T PTS: 1 DIF: Difficult

in a market NAT: AACSB Analytic | Strategy KEY: Comprehension
20. Marginal costs in high-technology industries tend to stay very low as production rises.

implications of this structure NAT: AACSB Technology | Creation of Value
KEY: Comprehension
21. An example of an important complementary asset is a state-of-the-art manufacturing facility.

implications of this structure NAT: AACSB Reflective Thinking | Strategy
KEY: Application
22. Technological paradigm shifts occur when new technologies come along that revolutionize the
structure of the industry, dramatically alter the nature of competition, and require companies to
adopt new strategies to survive.

OBJ: 4 - Explain the nature of technological paradigm shifts and their implications for
enterprise strategy NAT: AACSB Technology | Information Technologies
KEY: Knowledge
23. The law of diminishing returns states that marginal costs fall as a company tries to expand output.

implications of this structure NAT: AACSB Analytic | Creation of Value
KEY: Knowledge
24. One strategy for success in high-tech industries is to keep prices low and thus increase sales
volume.

implications of this structure NAT: AACSB Technology | Strategy
KEY: Knowledge
25. Even if they are constrained by a lack of capital, research shows that new entrants should avoid
partnering with a larger company and go it alone.

enterprise strategy NAT: AACSB Analytic | Strategy KEY: Knowledge
26. Antibody Solutions is an American company that specializes in cell bank storage and finding and
producing antibodies for bacterial and viral infections. Antibody Solutions would not be
considered a high-tech company since it is not in the computer industry which is considered high-
tech.

NAT: AACSB Reflective Thinking | Information Technologies KEY: Application
27. The works of Shakespeare and Beethoven and the English language are all examples of standards
within the public domain.

OBJ: AACSB Reflective Thinking | Legal Responsibilities
NAT: 1 - Understand the tendency toward standardization in many high-technology markets
KEY: Application
MULTIPLE CHOICE
28. In high-technology industries, the underlying scientific knowledge companies use is

a. increasing slowly.
b. advancing rapidly.
c. steadily decreasing.
d. tripling every quarter.
e. becoming stagnant.
ANS: B PTS: 1 DIF: Easy
29. All of the followingconsidered high-technology industries except:

a. Computers
b. Telecommunications
c. Consumer electronics
d. Pharmaceuticals
e. Retail clothing
ANS: E PTS: 1 DIF: Moderate
NAT: AACSB Technology | Information Technologies KEY: Comprehension
30. Technical standards in high-technology industries are

a. specifications developed by each producing
company for its own products.
b. specifications that all producers adhere to
when making a product or product
component.
c. product specifications imposed by the federal
government.
d. expressions of product features desired by
consumers.
e. general guidelines proposed by industry
leaders.
ANS: B PTS: 1 DIF: Moderate
31. Which of the following is an example of a technical standard?

a. Typewriter keyboard
b. Dimensions of containers used to ship goods
on trucks, railcars, and ships
c. The Universal Serial Bus (USB)
d. Communication between a PC and the
Internet via a modem (TCP/IP)
e. All of these
32. When standards are part of the public domain, they can be used
a. only by companies in a particular industry.
b. only by federal contractors.
c. by paying a fee to the Federal
Communications Commission (FCC).
d. freely by any company.
e. once without payment of a fee.
ANS: D PTS: 1 DIF: Easy
NAT: AACSB Analytic | Legal Responsibilities KEY: Knowledge
33. An industry is considered to be high technology, or high tech, when

a. its products are electronic or electrical.
b. the firms in the industry own intellectual
property.
c. its products are computers or are related to
computers.
d. the firms are innovative.
e. the underlying scientific knowledge that
companies in the industry use is advancing
rapidly.
34. When an industry's products rely on a common set of features, these features are called a
a. dominant design.
b. format war.
c. first mover.
d. public domain.
e. high-tech industry.
ANS: A PTS: 1 DIF: Moderate
35. In the 1870s, Christopher Sholes invented the layout of keys on a typewriter keyboard, sometimes
called the QWERTY layout. This invention is a(n)
a. technical standard.
b. fast-mover advantage.
c. complementary product.
d. outmoded technology.
e. high-tech industry.
ANS: A PTS: 1 DIF: Difficult
36. Which of the following economic benefits result from the use of standards?
a. Compatibility
b. Reduction in confusion
c. Reduction in production costs
d. Reduction of risk in supplying complementary
products
e. All of these
NAT: AACSB Analytic | Creation of Value KEY: Comprehension
37. Recently, the U.S. Food and Drug Administration began to require more descriptive labeling of
food products. This is an example of standards developed
a. in the public domain.
b. with a dominant design.
c. through industry cooperation.
d. by government mandate.
e. through market demand.
ANS: D PTS: 1 DIF: Difficult
NAT: AACSB Reflective Thinking | Legal Responsibilities KEY: Application
38. Microsoft released its latest operating system, Windows Vista, and intended it to replace earlier
versions of Windows. Buyers of Vista had to learn how to use the features of the new software;
thus, buyers were facing
a. a first-mover disadvantage.
b. outmoded technology.
c. a positive feedback loop.
d. a format war.
e. switching costs.
ANS: E PTS: 1 DIF: Difficult
39. When automobiles first became available to the public, it was difficult for buyers to find products
such as tires, gasoline, and light bulbs for their cars. Early automobile owners
a. faced a first-mover disadvantage.
b. lacked complementary products.
c. were locked out of the market.
d. lost the format war.
e. were too innovative.
ANS: B PTS: 1 DIF: Difficult
in a market NAT: AACSB Reflective Thinking | Strategy KEY: Application
40. Matsushita licensed its VHS technology to rivals, while Sony kept its Beta technology
proprietary. This action allowed Matsushita to
a. win the format war.
b. enter into an alliance with Sony.
c. earn marginally lower profits than Sony.
d. enjoy a laggard advantage.
e. bear switching costs better than Sony.
41. What advice would you give to a firm that wants to exploit network effects?
a. Price your products high in the early stages of
the market's development.
b. Be a first mover and thus establish the
technical standard.
c. Create incentives for other firms to develop
complementary products.
d. Develop more killer applications than do
competitors.
e. Ask customers to bear the switching costs.
ANS: C PTS: 1 DIF: Difficult
42. Which of the following strategies should a company not adopt if it wants to win a format war?
a. License their technology to competitors.
b. Develop complementary products.
c. Enter into a joint venture to ensure
compatibility.
d. Aggressively market to jump-start demand.
e. Price the product high to recover steep upfront
costs.
43. What percentage of the world's PCs adhere to the Wintel standard?
a. 95%
b. 50%
c. 20%
d. 75%
e. 5%
NAT: AACSB Technology | Creation of Value KEY: Knowledge
44. Often, the industry standard is selected competitively by

a. market supply.
b. market demand.
c. government contracts.
d. all of these choices.
e. none of these choices.
NAT: AACSB Analytic | Environmental Influence KEY: Knowledge
45. An adequate supply of complements to a product helps ensure that consumers

a. will buy the company's product.
b. will experiment with the products of other
companies.
c. will buy the complements to use with the
products of other companies.
46. Killer applications are applications or uses of a new technology or product that
a. are so compelling they persuade customers to
adopt or use the new technology in droves.
b. drive consumers to the products or technology
of another company.
c. repulse new customers.
d. kill demand for the product or technology.
e. backfire on the company producing them.
ANS: A PTS: 1 DIF: Easy
KEY: Knowledge
47. The razor-and-blade strategy was pioneered by

a. Procter & Gamble.
b. Sony.
c. Toyota.
d. Ford.
e. Gillette.
48. Cellular phone service providers often sell the phone itself at very low prices and then charge a
relatively high fee for usage. This illustrates
a. first-mover strategy.
b. competitive cooperation.
c. the razor-and-blade strategy.
d. competitive positioning.
e. format licensing.
ANS: C PTS: 1 DIF: Difficult
49. Marginal cost refers to the cost of

a. switching to a new technology.
b. buying stock with loaned funds.
c. producing one extra unit of product.
d. realizing a profit.
e. motivating other firms to produce
complements.
ANS: C PTS: 1 DIF: Moderate
KEY: Knowledge
50. Aggressive marketing to jump-start demand for a product often involves all of these except:
a. substantial upfront marketing.
b. point-of-sale promotion techniques.
c. high introductory prices.
d. use of free sampling.
e. all of these are utilized in aggressive
marketing to jump-start demand for a product.
ANS: C PTS: 1 DIF: Moderate
KEY: Comprehension
51. Consider a cost curve, with production volume on the horizontal axis and marginal costs on the
vertical axis. What shape would the marginal cost curve most resemble in a high-tech industry?
a. Upward at a 45-degree angle
b. U-shape
c. Straight and vertical
d. J-shape
e. Straight and flat
KEY: Comprehension
52. Which of the following is not a true statement?

a. First movers are the first to recover the costs
of a new technology.
b. First movers have higher pioneering costs
than do later entrants.
c. Later entrants can avoid the mistakes of first
movers.
d. Later entrants have lower pioneering costs
than do first movers.
e. First movers are more likely to make mistakes
than are later entrants.
KEY: Comprehension
53. Which of the following is not one of the benefits that first movers enjoy?
a. Earlier benefits from economies of scale
b. Ability to create customer switching costs
c. First to obtain brand loyalty
d. Ability to accumulate knowledge about the
market
e. Lower pioneering costs
KEY: Comprehension
54. Which of the following is not a disadvantage to being a first mover?

a. Significant pioneering costs
b. Tendency to make mistakes
c. Risk of building the wrong resources and
capabilities
d. Accumulation of market knowledge
e. Possibility of investing in inferior or obsolete
technology
ANS: D PTS: 1 DIF: Moderate
KEY: Comprehension
55. The various strategies that companies should adopt to win format wars revolve around
a. getting the federal government to intercede.
b. making network effects work in their favor
and against their competitors.
c. effective use of advertising.
d. driving competitors out of business.
e. joint ventures.
56. Which of the following is not a basic strategy for a first mover?
a. Develop and market the innovation itself
b. Develop and market the innovation jointly
with other companies through a strategic
alliance or joint venture
c. License the innovation to others
d. Discourage development of complementary
assets
e. All of these choices
KEY: Comprehension
57. If a first mover does not have complementary assets, barriers to imitation are high, and there are
several capable competitors, the first mover should
a. license the innovation to others.
b. enter into a joint venture to protect the
product.
c. produce the product itself.
d. sell the technology outright to another firm.
e. wait until competitors develop an alternative
product.
KEY: Comprehension
58. If a first mover does not have complementary assets, barriers to imitation are low, and there are
many capable competitors, the first mover should
a. license the innovation to others.
b. enter into a joint venture to protect the
product.
c. produce the product itself.
d. sell the technology outright to another firm.
e. wait until competitors develop an alternative
product.
KEY: Comprehension
59. A technological paradigm shift is most likely to occur in which stage of the industry life cycle?
a. Embryonic
b. Growth
c. Shakeout
d. Maturity
e. Decline
enterprise strategy NAT: AACSB Technology | Environmental Influence
KEY: Knowledge
60. Consumers will bear the costs of switching technologies when

a. the benefits of adopting the new technology
outweigh the costs of switching.
b. switching costs are substantial.
c. switching costs are reimbursed by makers of a
product.
ANS: A PTS: 1 DIF: Easy
61. Cell phone technology is replacing traditional wired phone technology. This is an example of a(n)
a. first-mover advantage.
b. technological paradigm shift.
c. format war.
d. complementary product.
e. embryonic industry.
enterprise strategy NAT: AACSB Reflective Thinking | Information Technologies
KEY: Application
62. Which of the following will not help an established company in addressing the potential
challenge of a disruptive technology?
a. Access to knowledge about how disruptive
technologies can revolutionize markets
b. Investing in newly emerging technologies that
may ultimately become disruptive
technologies
c. Anticipating and planning for how disruptive
technology will change business
d. Distinctive competencies in the current
business model
e. Understanding that a disruptive technology
will require a radically different value chain
with a different cost structure
enterprise strategy NAT: AACSB Technology | Strategy KEY: Comprehension
63. Technological disruption

a. typically happens slowly.
b. is usually begun by the industry leaders.
c. affects mostly small niche markets.
d. causes firms to adopt a new business model.
e. is a problem primarily in embryonic
industries.
KEY: Compehension
64. There are guidelines for turbine blades for jet engines. These guidelines define the exact
material and performance requirements of these engines and can be referred to as
a. format wars.
b. technical standards.
c. a technological paradigm shift.
d. a first-mover advantage.
e. razor and blade strategy.
65. Mathematica 1.0 was one of the most distinctive applications for the short-lived NeXT Computer.
It still sets the standard for symbolic math and visualization on Windows, Mac, Linux, and Unix.
Mathematica 1.0 can be described as a(n) _____ application.
a. obsolete
b. high-tech
c. hardware
d. strategic
e. killer
in a market NAT: AACSB Reflective Thinking | Information Technologies
KEY: Application
ESSAY
66. What are technical standards, why are they important, and how are they established?
ANS:
Technical standards refer to a set of technical specifications that producers adhere to when
making a product or a component of it. Battles to determine and control technical standards in a
market are referred to as format wars. The outcome of these battles has huge implications because
the winner often has won an important source of differentiation.
Technical standards are important because they help guarantee compatibility between products
and their complements. They are also important because the existence of a standard helps to
reduce confusion in the minds of customers. In addition, the emergence of a standard can help
reduce production costs because once a standard is established, economies of scale in
manufacturing can begin. Finally, standards help to reduce the risks associated with supplying
complementary products.
To establish standards, companies may lobby the government to mandate a standard, or

sometimes companies may even cooperate without government involvement. In many cases,
however, the standard is set by the cumulative purchasing patterns of customers in the
marketplace. In these cases, the winner can realize significant benefits because each company is
likely to protect its innovations through copyrights and patents.
PTS: 1 DIF: Moderate

NAT: AACSB Technology | Information Technologies KEY: Synthesis
67. Write as if you were an outside management consultant and advise a firm attempting to win a
format war with a powerful and capable competitor. Give several options.
ANS:
One important consideration in winning a format war is to ensure a plentiful supply of
complementary products. If the firm has the assets required to produce the complements, it should
do so. If it doesn't have the required assets, it should enter into a joint venture or create incentives
for other firms to produce the complements. Availability of complements should increase sales of
the product.
Another important issue is ensuring adequate consumer demand, and one way to raise demand is
to leverage killer applications. The firm should work to create and support applications of its
products that are compelling to consumers. For example, online service providers found that
instant messaging and chatrooms were compelling and would cause consumers to subscribe to
their service. Price is also a powerful determinant of demand, and the firm should price its
products at a relatively low level to encourage sales. If the firm finds that a low price doesn't
contribute enough to profits, it can sell the product cheaply and then charge a relatively higher
cost for complementary products. Promotions can also help build demand.
If these choices tactics are not sufficient, the firm should also consider a joint venture or
cooperative agreement with competitors to establish its technology as the standard, or the firm
should consider licensing its technology. Licensing can be an effective way to encourage other
firms to adopt the technology as their standard, especially if the licensing fees are kept low.
PTS: 1 DIF: Difficult
in a market NAT: AACSB Analytic | Strategy KEY: Synthesis
68. Describe the advantages and disadvantages of being a first mover or a follower in a high-tech
industry. In your opinion, which strategy is preferable, and why?
ANS:
First movers have these advantages: a monopoly position in the early days of the industry, ability
to exploit positive feedback loops, brand loyalty, better cost savings due to earlier economies of
scale, creation of customer switching costs, and the accumulation of specific knowledge. On the
other hand, the disadvantages of a first-mover strategy include the high initial costs of product
development and marketing, the potential to make strategic mistakes, too much focus on early
adopters, and the risk of investing in inferior technology. The advantages and disadvantages of
being a follower are the mirror image of those listed above. Because both first movers and
followers enjoy some benefits and face some costs, the choice of a first-mover or a follower
strategy should be based on the capabilities of the firm and of its rivals. If the firm is highly
innovative or has competence in bringing a new product to market, it should pursue a first-mover
strategy. If the firm has skills in copying and improving on other firm's products, a follower
strategy would be preferable.

implications of this structure NAT: AACSB Technology | Strategy
KEY: Analysis
69. Give an example of an industry that has recently undergone a technological paradigm shift. What
impact did the shift have on established companies? On new entrants to the industry?
ANS:
Many industries in retailing and manufacturing have undergone technological paradigm shifts
related to the introduction of Internet technology. For example, the bookselling industry has been
fundamentally altered by the entrance of Amazon.com into the market. When Amazon.com
entered the book industry, it quickly became one of the largest booksellers in the country because
its online business model allowed for very high sales. The high sales led to lower prices for
consumers. Service to customers became more sophisticated because the online system could
keep track of a customer's previous purchases, make recommendations, and provide access to
reviews and other information about the products.
The impact on established companies has been profound because the industry's traditional
business model has all but disappeared. Established companies have either built Internet
capabilities to compete head-on with Amazon.com, or they have retreated into a focus strategy,
serving niches that Amazon.com doesn't find profitable.
New entrants to the industry have experienced lowered barriers to entry because a firm can now
sell its books nationwide with relatively little investment.

KEY: Evaluation

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Chapter 7—Strategy and Technology

ANS: F PTS: 1 DIF: Easy

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

4. The layout of the keys on a computer keyboard is an example of a technical standard.

ANS: T PTS: 1 DIF: Easy

ANS: T PTS: 1 DIF: Easy

ANS: F PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Easy

ANS: T PTS: 1 DIF: Moderate

9. Digital music downloads have high marginal costs.

ANS: F PTS: 1 DIF: Easy

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Easy

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

15. A razor-and-blade strategy refers to lowering a company's cost structure.

ANS: F PTS: 1 DIF: Easy

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Easy

ANS: F PTS: 1 DIF: Easy

ANS: T PTS: 1 DIF: Difficult

ANS: T PTS: 1 DIF: Moderate

21. An example of an important complementary asset is a state-of-the-art manufacturing facility.

ANS: T PTS: 1 DIF: Difficult

ANS: T PTS: 1 DIF: Easy

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Easy

ANS: T PTS: 1 DIF: Difficult

28. In high-technology industries, the underlying scientific knowledge companies use is

29. All of the followingconsidered high-technology industries except:

30. Technical standards in high-technology industries are

31. Which of the following is an example of a technical standard?

33. An industry is considered to be high technology, or high tech, when

44. Often, the industry standard is selected competitively by

45. An adequate supply of complements to a product helps ensure that consumers

47. The razor-and-blade strategy was pioneered by

49. Marginal cost refers to the cost of

52. Which of the following is not a true statement?

54. Which of the following is not a disadvantage to being a first mover?

60. Consumers will bear the costs of switching technologies when

63. Technological disruption

To establish standards, companies may lobby the government to mandate a standard, or

PTS: 1 DIF: Moderate

PTS: 1 DIF: Difficult

PTS: 1 DIF: Difficult

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